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Global Player From a Very Small Country: The Case of Hilti

October 10, 2011

“People are our greatest asset.” Many top corporate executives have mouthed this platitude, but few have put their money where their mouth is to the extent that Michael Hilti has. His family’s eponymous Liechtenstein-based power-tool business spends $10 million to $15 million a year teaching its 20,000 employees about the company’s culture. Michael has been told more than once that he must be crazy.

Hilti’s customers are the construction companies and mining businesses around the world that use its drills and fasteners. Not surprisingly, some 80 percent of its employees are male, many of them rugged factory workers who would seem as likely to climb the Matterhorn as to sit around a table discussing their feelings. Yet, every 15 to 18 months, all of them take part in a two- or three-day training course where they are encouraged, first, to be open and honest about themselves and, then, to share their thoughts and feelings with their colleagues in the same course.

The courses are not held in luscious city-center hotels as a sort of job perk. Rather, they take place in quiet, modest rural retreats. In one session, each participant goes for a 10- to 15-minute walk with another participant, one on one. The participants talk as they walk, then they switch to a different walking partner, so that by the end everyone has been for a stroll with everyone else. This allows them to get to know the members of the group in a different way, to open up without necessarily having to make eye contact. Sometimes the sessions take place around a campfire.

It is not easy to measure the effectiveness of such courses or the returns that Hilti is getting on its multimillion-dollar annual investment in what is, in effect, the personal development of its employees. But Michael Hilti has no doubt that it is money well spent. The courses have been running for less than a decade, and old-timers in the company say that if they had been able to do them 20 years ago, it would have changed their lives.

As for the benefit to the company, it says that the program helps new people to integrate quicker. And there must be some “Hawthorne effect,” the phenomenon first noted at a G.E. plant in the 1930s, whereby managers can motivate employees merely by paying attention to them. So much care is lavished on the Hilti individual that it must be good for productivity.

There are some more objective measures too. In an independent assessment of “great places to work in Switzerland,” Hilti came third in 2010. And there is positive feedback from its own employees, demonstrated by the company’s high retention rates and the annual global employee opinion survey. More than 90 percent of the company’s employees have responded to each of the last five surveys, and in the latest survey 89 percent said that they were “proud to work for Hilti.”

Finally, if imitation is the sincerest form of flattery, then Hilti should take cheer from the fact that others are looking at its methods. But no one else, Michael Hilti said, “is doing it with such discipline as us.”

The Culture Thing

Michael Hilti is in his mid-60s, soft spoken with a kindly inquiring expression. But he soon gives off the sense that inside the velvet glove there is a fist of iron. His rise to the head of a company that had revenue in 2010 of almost 4 billion Swiss francs (about $4.8 billion) and a net income of 142 million Swiss francs was not without its challenges. The company has been on its knees a couple of times since he started working for it almost 40 years ago.

Its most recent crisis occurred during the worldwide recession of 2008. The company expected such poor results that year that it announced it would pay no dividend in 2009. A program was introduced to reduce staff by 10 percent over a two-year period, and employees at headquarters took a pay cut — with senior management taking a larger cut than the rest. All travel was restricted to economy class. Ultimately, the pain was not as bad as it might have been, and at the end of the year the company announced that it had made a profit. A dividend could have been paid. But it was not. As Hilti himself said in a more general context, “when we say something, we stick to it.”

As a young man, Michael Hilti decided that after he got experience in other types of businesses, he would join the firm that his father, Martin, founded in 1941. He studied economics at the University of St. Gallen in Switzerland and joined Chase Manhattan. He then decided he would spend the next three years working in Japan. But in 1972, his father suffered a severe heart attack, and Michael decided to return to Liechtenstein to help the business.

What he came home to, he said, was a lesson in how not to run a business. The members of the three-man executive board appointed to run the company after his father’s heart attack spent all their energies fighting one another.

Hilti believes that one of the biggest mistakes the company made then was to recruit someone from outside onto the executive board. “It’s a very big risk,” he said, “to bring in an outsider at that level.” The man was not familiar with the company’s ways and none of the three directors knew each other well. At the time, it seemed as if Martin Hilti would not live for more than a few years (in fact, he survived until 1997), so there was constant fighting among the princelings over the succession.

Today, succession planning is taken very seriously at Hilti, and nobody comes onto the executive board (and gets into the running for the top job) without first having had significant experience inside the company. The board knows precisely what is to happen if the CEO or the chairman (or Michael Hilti himself) is hit by a tree. Likewise for all senior posts. When an executive director died on a Friday at the age of 49, his successor was announced the next Monday. “Succession planning,” Hilti said, “is one of the major responsibilities of a leader.” Another crisis occurred during the worldwide recession of 1982, when the company’s pioneers struggled to take it into the changing global business environment. One flaw identified at the time was the failure of big departments in the organization to talk to smaller ones. As part of an attempt to change this, the company introduced a pioneering training program that it called “Leadership Makes the Difference.” It wanted to blow fresh air throughout the organization, and it looked outside for unconventional individuals to set up the program. One of them eventually left to follow a Hindu guru.

The aim was to embed the corporate culture — the company’s rules on how employees manage themselves and others — more firmly within the group. By 2003, the program was so successful that the company won the prestigious Carl Bertelsmann Prize in recognition of its “exemplary corporate culture.” But Michael Hilti said that even as he was receiving the prize that year, he knew the training program that had contributed so much would be abandoned. “We wanted more,” Hilti said. “What we had was not enough.”

The company calls the new approach “OCJ,” Our Culture Journey, and it involves organizing 32,000 working days of corporate-culture workshops every year. The first program offered a one-time training course with a strong focus on personality development and no follow-up. The OCJ “camps,” on the other hand, occur regularly; there is a structured follow-up process; and the lessons are carefully integrated into a business context.

The ultimate goal is to maintain quality control over the more than 200,000 customer contacts that the company’s employees make every day. Nobody can directly supervise so many interactions. The only way to maintain standards is to train employees to carry the company’s culture wherever they go. Their behavior is then steered by a deeply ingrained belief in a common set of values — values that are grounded in teamwork, integrity, courage and commitment.

This time, the company was unable to find outsiders to create what it wanted. So it built the courses by itself, and it now has more than 70 in-house trainers who are responsible for running OCJ around the world. At the core everywhere are the same basic principles. But in each market these are tuned to meet local peculiarities.

A central totem of the training is a mirror, a reminder to Hilti employees that they need to look at themselves for guidance. “All training starts with the mirror,” said Eivind Slaaen, the head of the training operation. Slaaen is a Norwegian who came to Switzerland in the 1980s to study at St. Gallen University, a training ground for many of Hilti’s senior managers. Participants are taught that it is they who are responsible for their careers, not the company. “What prevents us from being a great company?” they are asked while standing in front of the mirror, before writing their answers.

The mirror reflects an idea developed by Jim Collins, author of the bestselling book “Good to Great.” With success, Collins said, we should look out of the window and give credit to others for the achievement; but with failure, we need to look at a mirror, at ourselves.

One feature that Collins identified as distinguishing leaders of great companies from leaders of the merely good was “personal humility.” This company too believes that personal humility is essential for great leadership. OCJ camps are occasions for casting off the ego.

The People at the Top

Hilti’s leaders are young. There is a rule that executives retire when they hit their 56th birthday. The traveling required of a top executive, Michael Hilti said, is exhausting and it cannot be done effectively beyond a certain age. The other side of the coin is people are promoted early. One manager was named to the executive board at the age of 38.

The retirement rule does not mean that the company loses the services of its top executives completely in their mid-50s. Some are re-employed as consultants. A former executive director is currently overseeing the initial integration of the group’s new purchase in the United States, a venture into solar energy based in Albuquerque, N.M. In 2010, Hilti’s solar business was the fastest growing division in the group.

Others who retire from the executive board remain active as trustees of the Martin Hilti Family Trust, the vehicle that owns 100 percent of the company’s shares. Or they are appointed to the main board of directors, which is where the well-over-56 Michael Hilti now sits.

As in Germany, companies in Liechtenstein have two boards: an executive (management) board and an overall (supervisory) board. But Liechtenstein’s supervisory boards have more executive responsibilities than their German counterparts. Hilti’s meets five or six times a year and each meeting lasts for two days. There are no subcommittees, but since June 2011, there is an Audit Committee as required by a new Liechtenstein law. Everything else — nominations, compensation and so on — is considered by the board as a whole. Before the meetings, directors are expected to do extensive homework, which may involve taking trips to see customers on their own ground. Potential directors are warned that the job is going to involve anywhere from 20 to 40 working days a year.

This is demanding for a part-time role. But Hilti’s seven board directors are well paid. And they do not have to travel far to board meetings: six of them are Swiss. The seventh, a Dane, was elected to the board just last year.

This sounds parochial for a company whose markets are already global — over 40 percent of its sales are outside Europe — and are expected to get more so. There will be “a geographic shift in the focus of Hilti activities in the future,” according to the company’s latest annual report. But Michael Hilti argues that it is better to get local people who have international experience — of new markets like India and China, for instance — than to bring in people from those markets and hope that they will come to understand the Hilti way. There is something there of the famous dictum of Akio Morita, a founder of Sony: “global localization,” a phrase he used to describe the way his intrinsically Japanese company went into markets all over the globe.

In any case, the severely limiting factor of the local labor market (the population of Lichtenstein is just over 35,000, of whom 25,000 are of working age) means that there are some 60 nationalities represented in the company’s Liechtenstein headquarters. They help to counter any Swiss-German bias that there may be at the top of the organization.

The Four Values

At the heart of the company’s culture lie its four “values”: teamwork, integrity, courage and commitment. Teamwork is central to everything. “We don’t want prima donnas here,” Michael Hilti said. The reward system is partly built around team results. There are no bonuses based on individual performance — which casts doubt on whether the Hilti system could ever work in a financial institution. All bonuses, both annual and longer-term, are based on the performance of teams. And so are the acknowledgements of achievement. “You have tocelebrate success,” Hilti said, and every year the company awards what it calls the Hilti Innovation Prize. But the prize is not given to an individual; it is awarded to a team.

At the heart of what the company calls integrity, its second value, lies its “stand against corruption.” At Hilti, integrity also includes honesty and predictability. As such, there is zero tolerance for violations, and this, as Michael Hilti is the first to admit, “does not always make business easy.” Many customers come from industries like mining and construction, where bribery has long been endemic. The group’s stand against corruption has lost it orders.

The philosophy of integrity extends to all areas of its employees’ behavior. For example, anyone caught cheating on expenses is out, immediately. The sanctions are draconian, and everybody knows it.

The firm has also made a determined commitment to the environment. It monitors its annual calculation of “CO2 emissions per employee,” a figure that has been declining for the past five years. Its aim is to use the knowledge that it acquires from its environmental awareness to “develop new and innovative business fields.”

The third value, courage, refers to an attitude of being able to manage oneself, to change and break out of what Hilti calls “the circle of habits.” We may be born poor, but we are not condemned to remain poor. Look in the mirror, and set out on a journey, as the company puts it, “to translate the abilities of the individual into optimal career opportunities.”

Commitment, Hilti’s fourth value, shows in its employees’ considerable dedication to the firm. There are plenty of people around the headquarters in Schaan, Liechtenstein, dressed in the distinctive red of the company’s logo, and their respect for the founder’s son is very evident. In theory, there is a risk that such commitment could turn the culture into a cult — a sort of sect (“the Hiltis”?) whose members are drawn to each other by a fondness for weeping and for power tools.

In practice, the company urgently needs people to be individuals. Research and development, where it employs more than 1,000 engineers, is vital to the company’s future success. And innovation does not come out of mindless guru worship.

Moreover, many of them follow unconventional individual careers. There is no clear trajectory to the top. Simone Barlow, who works in South Africa, started as a receptionist before becoming a sales agent and then a product manager. “Hilti,” she said, “made it possible for me to have a career.”

For all its global aspirations, however, the company remains a family firm. It had a flirtation with public markets: nonvoting shares were quoted on the Zurich Stock Exchange from 1986 to 2003. Then, the company chose to become private again, with the family trust buying all listed shares.

The Hilti Family Trust was formed in the 1980s to separate the interests of the company from those of the family. Michael Hilti believes that its structure and its rules can underpin the company’s future well beyond the demise of the last family employee. For instance, it decrees that no one, regardless of surname, gets to rise within the company without the right qualifications, proven loyalty, a successful record in running a large organization, and the right personal qualities.

Time alone can tell whether that is enough to “get the right people on the bus in the right seats doing the right things for Hilti” once there is no longer a family member on board. Meanwhile, though, the sun is still shining brightly on the little red boxes that have spread from one small Alpine valley to all four corners of the earth.

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Tim Hindle is founder of the London-based business language consultancy Working Words. He was a contributor to The Economist for 25 years and was editor of EuroBusiness in the 1990s.